Tax changes won't fix supply

The Productivity Commission builds a sound case for abolishing state stamp duties on conveyancing. Stamp duty is a most inefficient tax because it inhibits the turnover of property - the so-called "lock-in" effect - and impedes the transformation and consolidation of cities. The commission points out that a broadly based land tax would be much less distortionary, as would an expanded GST. Although highlighted in its draft report on housing affordability, therefore, the commission's case for replacing stamp duty is not directed at easing price pressures (on which stamp duty has little or no effect when demand outstrips supply) but at installing a more rational tax system. That's a laudable goal but, if states are not deaf, they are intentionally soundproofed.

For all its weaknesses, stamp duty is here to stay. That's not just because it raises vast sums ($4 billion a year in NSW) during real estate booms. That money can be replaced by other less distortionary sources. But for all the prickliness stamp duty generates among voters, particularly those who mistake its impact on housing prices, governments reckon they can live more comfortably with voter outrage at a tax applied on the acquisition of a property rather than a tax, for example, applied annually to all landholders. From the point of view of politicians, it is the lesser of two electoral evils.

Stamp duty also cuts into sale profits in a sellers' market rather than adds to buyers' costs, even though purchasers are directly levied. In other words, the winners in a rising market - existing property owners - would benefit most from stamp duty's abolition while buyers would get little or no benefit because stamp duty is effectively included in the overall calculation of affordability. There is, however, an exception. Stamp duty widens the deposit gap for first-home buyers because the cost is upfront.

Attending to this anomaly is easier said than done because financial relief, either in direct grants to first-home buyers or discounting their stamp duty obligations, fuels overall demand for housing, thereby pouring petrol on an otherwise overheated market. The effect, therefore, is a transfer of the cash benefit from first-home buyers to vendors. Although government grants and stamp duty discounts ease deposit gaps, their eventual beneficiaries are the sellers, already the key winners of a market boom that has been more prolonged, more evenly spread and achieving lower rates of affordability than ever before.

Apart from the blunt instrument of monetary policy, which inflicts the harshness of interest rate rises indiscriminately across a heterogeneous economy, and addressing short supply with smarter, quicker and more assured planning processes (with all that means for urban sprawl and inner-city consolidation), the harsh reality is that governments are ill equipped with policy options to drive up housing affordability. That's why governments - local, state and federal - need to focus on freeing up supply rather than using the Productivity Commission draft as a bat with which to beat each other.

The obligation to extradite

Australia's obligations under international law are clear. Direct involvement or complicity in the financing of terrorism demands either the extradition or the prosecution of the alleged offenders. In the case of two Sydney brothers convicted in absentia by a Lebanese military court of contributing funds to a terrorist campaign, the appropriate jurisdiction is Lebanon where the anti-US attacks were carried out. This means any request from the Lebanese Government for the extradition of Bilal and Maher Khalal should - as the Prime Minister, John Howard, says - receive a "positive response".

The Khalal brothers' lawyer, Adam Houda, argues that the convictions in Lebanon were unreliable and, therefore, should not trigger extradition. The evidence linking his clients to an illegal $3500 donation suggests the money was intended for charity, he says. Yet any claim by a terrorist organisation of "charitable, social or cultural goals" does not exempt its supporters from the provision of the 1999 International Convention on the Suppression of the Financing of Terrorism, signed by 132 nations, including Australia, nor the domestic Suppression of Financing of Terrorism Act, which came into effect in July.

Bilal Khazal, a former Qantas baggage handler from Lakemba, had his passport cancelled in January last year because Australian authorities were concerned about his possible links to al-Qaeda. He and his brother are also well known to the Australian Federal Police as adherents of the hardline Wahabi Muslim sect. However, this does not mean Australia's obligations are confined to assisting the Lebanese authorities, which have tried more than 30 people over the bombing of a McDonald's restaurant in Beirut in April and other planned terrorist acts. Generally, Australia is also obliged under international law to support the right of an accused person to a fair trial. This would usually mean the accused is both present during the trial and properly represented. A sentence handed down in absentia, without the benefit of a legal defence, does not meet these basic conditions.

Both international and domestic anti-terrorism laws would allow the Khalal brothers to be tried in Australia, thus circumventing concerns over Lebanon's legal processes. Such a trial, however, would present overwhelming practical challenges, none more compelling than absence of evidence or witnesses within Australia's jurisdiction. The Khalal brothers have the right to appeal against their sentence, but only in person in Lebanon. Should the extradition proceed, the Australian Government must insist the two men have access to a competent, legal defence.